It has obviously been a bad year for newspaper sales. The annual circulation figures show a decline in both the daily and Sunday market. That doesn't amount to a catastrophe, given that more than 13m national titles are still being sold every day and, it must be noted, the previous year's figures included the huge September 11 sales boosts. But there is also no doubt that the historic downward trend has accelerated a little over the past 12 months and it's reasonable to ask why.

Who should we blame? The owners, the journalists, the buyers, the government? Or should we attribute all our ills to the invisible hand of the market? Look first at the chart which details the situation over the final six months of 2002. Only four titles record increases and three of those need qualifying because they have relied on price cuts and, in the case of the two Expresses, unfathomable circulation successes in foreign parts.

Only the Daily Star can truly claim to have bucked the trend with a remarkably consistent sales rise which still shows no sign of tailing off. The editor, Peter Hill, doesn't believe he has discovered a magic formula, but he has single-mindedly pursued a straightforward strategy: if it's on TV, then it's in the Star. "The lives of most people centre on television," he says. "The world comes to them through TV and it's crazy to underestimate its importance."

So Hill's yardstick when selecting editorial material is based overwhelmingly on the people familiar to viewers - soap stars, gameshow hosts, reality TV contestants, pop singers, footballers and their wives.

"My job is to sell more Daily Stars and that means giving readers what they want," he says. "Crime doesn't sell as it once did. Stories about ordinary people don't sell because those ordinary people don't want to read about each other."

Hill also knows who he hopes to attract, readers of the Daily Mirror and the Sun. He acknowledges that the Sun is a formidable opponent, although he believes it has relied more on price-cutting and promotions than on editorial initiative to stay ahead, arguing that its owner, Rupert Murdoch, has sacrificed millions in cover price revenue. Indeed, more than 2m Suns were sold last month at a discount.

It is worth recalling that the Sun was drawn into a price war by the foolish decision of the Daily Mirror's managers when the paper was relaunched almost a year ago as a more serious tabloid. Hill says the "high-risk" relaunch has made the Mirror "very vulnerable", adding: "I can't afford to be so self-indulgent."

Mirror editor Piers Morgan may bristle at such a charge, but he can't be pleased with his paper's sales performance over the year. Nor can the irony have escaped him that his most successful circulation winner was the less-than-serious Paul Burrell exclusive.

Then again, that's a cheap shot. The Mirror is still meant to be populist despite its new guise and it cannot afford to turn its back on trivia. Morgan has to maintain a balance between the light and the heavy, and I refuse to write off the whole enterprise as a mistake. Whether successful or not, what makes the Mirror initiative so interesting is the understanding that papers cannot afford any longer to go on doing the same old thing year after year.

Even if we admit that the national newspaper industry is managing decline, there is no point in racing headlong downhill. Owners and editors know they face all sorts of headaches. Distribution, for example, is becoming more problematical because more papers are being sold at supermarkets and petrol stations while corner shop newsagents are closing. That threatens home deliveries, the bedrock of regular sales, especially for broadsheets.

Then there is the breeding of a something-for-nothing culture. Free papers, or papers sold for almost nothing, create in the public mind a feeling that it isn't worth paying for their daily read. Yet papers go on getting bigger, offering greater quantity with extra sections and supplements and, in the case of many, increasing quality too. So the cost of producing papers goes up while the willingness of people to pay goes down.

Admittedly, revenue will improve when (or should that be if) advertising returns once the global economy picks up. But that money will have to be ploughed back into papers if owners continue to add pages and then face pressure to give them away. Some people, overlooking that they pay a licence fee, and even a satellite subscription, also feel TV news and entertainment is "free", so why buy a paper.

The other major challenge is the internet. Although the dotcom commercial bubble burst, the phenomenon itself hasn't been discredited. Just the reverse. More and more people log on every day, surfing with fluency through their favourite sites. Papers that have already created audiences for their own sites don't only stand a better chance of encouraging surfers to pay in the short term. They will also be in a far better position to make that historic switch from newsprint to internet which many predict with a growing enthusiasm.

I have believed for many years that the big change in the British press would be the gradual elimination of red-top tabloids and the growth of broadsheets but, on the basis of last year's figures, I'm not so sure. There is still a strong audience for red-tops, and broadsheets haven't reaped huge rewards as a result of their decline.

The broadsheet audience may be the one moving faster towards a screen-based reading culture. It doesn't mean that they won't buy papers, but they will do so on many fewer occasions through the week. At weekends, however, they may feel that reading newsprint is a leisure activity. In many ways, that movement has been prefigured in the preponderance of lifestyle material already on offer in the weekend broadsheets.

Whatever else owners and editors do in 2003, they will have to think more about where they are going. In that sense, however snobbish some might be about Hill's Daily Star, or dismissive of Morgan's Mirror or amazed at the Guardian's investment in its websites, these papers are trying to find a market in the future.